Wednesday, January 16, 2013

Income Tax :- Planning /How to Save Tax

Tax planning is a big issue
for an employee. Now-a-days every
employee is busy in calculation of Income Tax for the Financial Year 2012-13 or
Assessment Year 2013-14. Each employer
wants to deduct proportionate Income Tax (TDS) on salaries of their employees. There is no end of planning to save Income Tax
, but some examples of tax planning for the Financial Year 2012-13 and
Assessment Year 2013-14 is given as under :-

Deduction on life
insurance policy, taken after 1 April 2012, will be allowed only if yearly
premium is less than 10% of sum assured. This is a new change from c.y. earlier
it was 20%. If its more than 10% then not eligible for deduction u/sec. 80C

Deduction under this section can be claimed only if the contribution to
your NPS account is made by your employer and the deduction is limited to a
maximum of 10% of your basic salary. Returns on NPS are tax free, but
withdrawal is still taxable. The deduction under sec 80CCD is over and above
the deduction available under sec 80C.

4) Section 80 D

Deduction under section 80D

Deduction of Rs.
15000/- is allowed if the same is paid as premium for Medical Insurance taken
for self / dependents or towards preventive health check-up (max Rs. 5000). In
case any of self / dependents is a senior citizen, the deduction allowed is Rs.
20000/-

Additional Rs. 15000/-
is allowed as deduction if the same is paid as premium for Medical Insurance
taken for parents. In case the parent is a senior citizen, the deduction
allowed is Rs. 20000/-

5) Section 80DD

Deduction under section 80DD

Exemption given for Expenditure made for a disabled dependant
towards Medical Treatment/Training/Rehabilitation. It also includes the
LIC/Insurance premium paid towards maintenance of such dependant.

Maximum deduction allowed is Rs. 50,000/- in
case of normal disability and Rs. 1 Lakh in case of severe disability.

6) Section 80DDB

Deduction under section 80DDB

Exemption given for expenditure incurred on
specified disease or ailments such as cancer/aids.

Deduction is allowed for repayment of interest component of Higher
Education loan. All education after Class 12 is allowed, either vocational or
Fulltime. But should be from a school/institute/university recognized by the
government.

8 ) Section 80G

Contribution to exempt charities –
25/50/75/100% depending on the charity and as per approval

14) HRA – Any House Rent Allowance given to an employee is tax
free upto the minimum value of the following conditions (subject to – when an
employee can produce rent paid receipts from landlord for the period and if the
employee has not availed of tax exemptions for home loan interest / principal
repayment):

a) 50% of Annual Basic (40% of Annual Basic in
case of non-metros)

b) Actual HRA received

c) Rent Paid – (10% of Annual Basic)

15) Professional Tax – Any Professional Tax deducted from an
employee’s salary can be reduced from the annual salary income to arrive at
taxable salary.

17) 80CCG – Direct Equity Investment – Under ‘Rajiv Gandhi Equity
Savings Scheme‘ – a new equity investor will be able to claim 50% of his
investment in direct equity as deduction subject to maximum investment of Rs.
50,000 and provided his taxable income is below Rs. 10 lacs. The investment
will be subject to 3 years lock-in.

Update 23 Sep 2012: Government has notified this scheme (RGESS). Mutual
funds and ETFs that invest in BSE100 or CNX 100 stocks or PSUs which are
Navratna, Maharatna and Miniratna will qualify under this scheme. These
investments can be traded over stock exchange after 1 year of investment. New
equity investor has been defined as someone who has opened a Demat account but
has not bought any securities till date of notification of this scheme (22 Sep
2012). More information here.

18) Section 80TTA – Savings Bank Interest - No tax will be charged on interest earned
on balance in savings bank account subject to a maximum of Rs. 10,000 per year.